New Zealand Dollar: Market overpricing RBNZ hikes – BNY

BNY’s Geoff Yu highlights that foreign holdings of New Zealand government bonds rose to 58.9% in July 2026, while NZD/USD trades slightly above its 12‑month average. Despite robust domestic activity, Yu doubts current market pricing that implies two more RBNZ hikes by year-end, arguing well-anchored inflation expectations and stable nontradables inflation soften the case for further tightening.

Foreign demand vs. rate expectations

"New Zealand’s central bank data show foreign investors held 58.9% of government bonds in July 2026, up from 57.7% in June. Nonresident holdings rose to NZ$122.47bn from NZ$115.53bn, while non-resident repo holdings edged down to NZ$11.02bn from NZ$11.09bn."

"The NZD itself is now trading slightly above the rolling 12-month average, but we continue to doubt the current market pricing of interest rates expectations, where two more Reserve Bank of New Zealand (RBNZ) hikes are expected by year end. Domestic activity remains robust, but inflation expectations remain relatively well-anchored."

"Nontradables inflation is relatively stable, and if the RBNZ looks past headline price risks, the domestic case for tightening softens considerably."